North Carolina Gov. Pat McCrory speaks June 24 during a candidate forum in Charlotte, N.C. After suing the federal government in May to defend the state's controversial new law limiting LGBT rights, Gov. McCrory dropped the lawsuit Friday. But the matter is far from settled.

When a new North Carolina law limiting protections for LGBT people drew fire last spring from critics who described it as an unnecessary “bathroom bill” that violates the rights of transgender people, the state sued the federal government. Gov. Pat McCrory dropped that lawsuit Friday, but the matter is far from settled, as a debate over the rights of transgender Americans rages nationwide.

On the same day that North Carolina sued the federal government, the federal government sued North Carolina, alleging its new law, House Bill 2, constitutes sex-based discrimination in education and employment in violation of three federal laws. That case, filed by the US Department of Justice Civil Rights Division, remains active.

In dropping the state’s lawsuit, Gov. McCrory’s attorneys noted that the arguments North Carolina raised as plaintiff will be raised again as defendant in the DOJ’s suit. They cited cost-savings for the state and time-savings for the court as reasons to drop the complaint, in light of the DOJ’s “largely duplicative” action.

The state law in question has two parts. First, it requires transgender people in schools and state government buildings to use only those restrooms that correspond to the sex on their birth certificates. Second, it excludes gender identity and sexual orientation from state anti-discrimination protections, barring local governing bodies from passing such nondiscrimination policies of their own.

The ACLU of North Carolina, Equality NC, and other groups have filed legal challenges to both provisions, arguing that the statewide ban on added protections for lesbian, gay, bisexual, and transgender people violates the US Constitution’s equal protection clause, as The Charlotte Observer’s Steve Harrison reported Friday.

The provision in North Carolina’s law that regulates school restrooms could be implicated in a legal battle out of Gloucester, Va., where Gavin Grimm, a 17-year-old transgender male student, has sued his local school board for requiring him to use the girls' restroom.

The Fourth Circuit Court of Appeals ruled in Mr. Grimm’s favor, ordering the district to permit Grimm to resume using the boys' restroom. But the US Supreme Court issued an emergency stay last month, temporarily halting the Circuit Court’s ruling while it mulls whether to hear the case.

The legal question at issue is whether the White House can interpret Title IX, which bans sex-based discrimination in education, as banning discrimination on the basis of gender identity, as The New York Times reported. The US Department of Education issued a directive last May warning schools that they could lose federal money if they discriminate against transgender students. Nearly half of the states have challenged that directive.

If the Supreme Court rules in Grimm’s favor, the decision could affect only a portion of North Carolina’s law, perhaps applying exclusively to schools and colleges, as the Observer reported. In other public facilities, transgender people could potentially still be required to use bathrooms that match the sex on their birth certificates.

The DOJ cited Grimm’s case Friday when it submitted a brief in support of its request for the court to block the bathroom provision of House Bill 2.

“For non-transgender people, a prohibition on using bathrooms and changing rooms designated for the opposite sex does not marginalize, stigmatize, or suggest that any person’s identity is unworthy of respect,” the brief states. “Non-transgender people likely never notice or give much thought to the gender markers on bathroom doors.”

North Carolina’s law, however, creates a new definition of “biological sex” that excludes transgender people and “transforms those gender markers into signals that transgender men are not considered men and transgender women are not considered women, creating shame, stigma, and distress.”

McCrory and the law’s supporters contend it is necessary to preserve safety and privacy, especially for women and girls who use public restrooms.